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Moody's: Mass. health law will hurt hospitals' bottom lines

The Lowell Sun

Updated:
08/07/2012 06:41:28 AM EDT

By Matt Murphy

State House News Service

BOSTON -- The historic health-care cost-control law signed by Gov. Deval Patrick Monday will hurt the bottom lines of Massachusetts hospitals and limit their flexibility to grow, a major credit-rating agency warned.

"The legislation is credit negative for Massachusetts hospitals because it will limit their revenue growth and reduce their operating flexibility," Moody's Investment Services wrote in a credit analysis of the new law.

The report also suggested the money derived from a $225 million one-time assessment on health plans and major health-care providers to help support community hospitals would artificially work to keep smaller hospitals in business, while limiting the expansion opportunities for larger hospital groups and hurting their credit standings.

"Another negative credit effect of the bill is that the state will use an excise tax on insurers to support smaller and less profitable hospitals, potentially allowing them to remain in business longer than would otherwise be possible and limiting the ability of larger systems to consolidate and grow through acquisitions," Moody's wrote.

Joined by legislative leaders, Patrick signed the new law -- the first of its kind in the country -- on Monday. Supporters say it will build off the successes of the 2006 law that has led to more than 98 percent of residents having health insurance.

The Massachusetts Hospital Association called the law "immensely complex.

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After the News Service inquired about the Moody's analysis, the association said in a statement: "The hospital community supports the law's objectives and praises many of its provisions, even as we have expressed concerns regarding select provisions. And we pay attention to Moody's perspective. But we believe that the best way to handle the issues that Moody's raises, and our other concerns, is to work thoughtfully and collaboratively with policymakers and stakeholders to address them and avoid the hazards ahead, allowing the full potential in this law to be realized."

The hospital group said it will be a "challenge" to successfully implement the law, but said "overcoming challenges in Massachusetts health care is what we all do best. Thoughtful collaboration got us this far and it will get us the rest of the way."

Though the final bill did not include what Moody's described as an "onerous" tax on high-cost providers favored by the House, the rating agency said the bill would "publicly expose" hospitals and care groups that fail to meet benchmarks laid out in the bill for cost growth.

The bill will limit year-to-year growth in health-care costs to the overall growth rate of the state's economy for the first five years, dipping half a percentage point lower between 2018 and 2023. The goal would essentially cut health-care cost growth in half, to about 3.6 percent or lower.

Though Moody's said the new commission overseeing the cost growth targets could not tax or punish hospitals that don't meet the benchmarks, the bill actually allows the Health Policy Commission to fine a provider up to $500,000 for failing to file or faithfully implement its improvement plan. The penalty, according to the bill, should be a "last resort."

Further, Moody's said the requirement that hospitals file a performance improvement plan would "publicly expose organizations that do not meet cost targets."

The bill also requires state agencies administering health plans for Medicaid patients to adopt alternative payment models for at least 50 percent of Medicaid beneficiaries by July 1, 2014.

"Although the state has yet to provide specifics of those alternative models, we expect them to include bundled payments and shared savings models that are substantially different from the current fee-for-service model. We expect the new reimbursement models will reduce hospital revenues," Moody's wrote.

Gov. Patrick said the shift would improve the quality of care, instead of rewarding quantity.

"We are ushering in the end of the fee-for-service care system in Massachusetts in favor of better care at lower cost," Patrick said.

Moody's said hospitals that fail to adapt quickly will likely lose revenue, though the rating agency said it could not estimate how much given that the payment models have not yet been defined.

Last week, Patrick said he was not concerned that the cost growth limits would negatively impact employment, or force hospital closures.

"No, no. I think, you know, there are going to be changes, but if those changes mean lower cost and higher quality care because care is being delivered in different settings, in homes for example, in neighborhoods in communities rather than in hospitals, then I think that's something we all ought to strive for," Patrick said.

Atrius Health CEO Gene Lindsey predicted that the bill could lead jobs to "migrate" from hospitals to other institutions but it could actually be an economic boon for the industry. "I think there is plenty of work available," Lindsey said.

In an interview on Friday, Housing and Economic Development Secretary Greg Bialecki said the new Massachusetts health-care system may include more jobs outside of hospitals than the current system, which means workers will need to be trained in providing care at home and other non-hospital settings.

"The folks who work in the hospitals, their training is very specialized and it's for work in the hospitals so to ask those folks to say, 'Oh well, you're in health care so you can also take care of somebody in a home situation,' it doesn't work that way," Bialecki said.

But the roughly $60 billion health-care industry is well resourced enough to handle those changes as well as other demands called for in the legislation, he said. Bialecki said the health-care industry could weather the one-time $225 million assessment on hospitals and insurers.

"It's such a big industry and we spend so much money on health care in the country right now that an assessment that seems like a big number to you and me is in fact a tiny, tiny fraction of a percent of the total revenues of the industry," Bialecki said.

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